Tata Motors Q3: India business is the real worry

Tata Motors' over-dependence on its British subsidiary Jaguar Land Rover (JLR) sent its first warning in the third quarter, when its consolidated net profit fell 25.5 per cent to Rs 3,581 crore year-on-year. JLR, which was aquired by Tatas in 2008, had been holding up profits of the Indian parent for the last four fiscals because of the growing demand in the Chinese and Russian markets.

But the deflation-clouded Chinese market has hurt JLR's sales, which grew only 4 per cent there as against 40 per cent growth between April and September. A recession-bound Russian market has also posed challenges to the marquee brands. JLR's sleek Jaguar saloons and Range Rover SUV sales fell 0.6 per cent year-on-year, because of lower demand in North America. All these have put Tata Motors' Indian unit's flop show - a loss of Rs 2,123 crore versus Rs 1,251 crore profit in the same quarter last year - in a bad light.

JLR's EBITDA margins fell slightly to 18.6 per cent from 19.1 per cent and profit after tax fell 4 per cent to 593 million pounds ($907 million), partly because of unfavourable revaluation of foreign currency debt. On Friday, the shares of Tata Motors fell 5.05 per cent to Rs 559.75 on BSE because of the grim performance, while the BSE Sensex was down 0.46 per cent.

But things are not that bad for JLR. Ralf Speth, CEO, JLR told reporters that they are cautiously optimistic about China. The company is opening new dealerships and is optimistic about volume growth in China, he added. Last year, Ambit Capital Markets had valued Tata Motors' domestic auto business at just Rs 20 a share while counting JLR at Rs 500 a share. That puts 90 per cent of the company's value in JLR.

The analysts say that JLR's muted performance is mainly because of dull economies. "It will recover fast in line with the re-emergence of economies." In the next financial year, Tata Motors plans a capital investment of 3.8 billion pounds in JLR, which opened a manufacturing facility in China in October.

With two of its most important new models ever - Jaguar XE and Land Rover Discovery Sport - arriving this year, JLR expects that sales will recover in established markets and emerging markets. The automaker also plans to launch 40 new products in JLR.

The company aims to enhance the manufacturing capacities of JLR in the UK, with plans of operational expansion in China and Russia. In addition, they will target new export markets such as Australia, Philippines and Vietnam for growth.

The global JLR retailer network will expand from 2,600 across 180 countries at present to over 3,300 by 2020, while specialist fleet and business centres will account for 20 to 25 per cent of total volume. In line with this commitment, JLR aims to increase global fleet sales from 16 per cent to around 25 per cent of total volume.

JLR will come back on track. But Tata Motors will have to think seriously about its business in India - where it recently launched two new brands Zest and Bolt. The company needs to work towards changing its brand perception, urgently.